Asian money market rates fell as the central banks of Japan and Australia injected funds into the financial system and European lenders were yesterday offered unlimited U.S. currency.
The rate Australian banks charge each other for three-month loans fell to 5.695 percent, compared with 7.49 percent on Sept. 19, four days after Lehman Brothers Holding Inc. filed for bankruptcy. Japanese overnight commercial borrowing rates fell to a one-week low.
The success of Australia, Hong Kong and Japan in thawing frozen interbank markets by providing cash and guaranteeing lending, may push regional governments including South Korea to follow suit. South Korean borrowing costs may rise today to a record as Standard & Poor's considers cutting the credit ratings of lenders including Kookmin Bank.
``Lending rates between banks are generally coming down albeit slowly,'' said Su-Lin Ong, a senior economist at RBC Capital Markets Ltd. in Sydney. ``The system's been through incredible stress in the last month, so it's not going to snap in overnight.''
Europe and the U.S. are making more than $2 trillion available to bolster banks, helping free up money markets. The London interbank offered rate, or Libor, that banks charge each other for three-month dollar loans dropped for a third day yesterday, its longest sequence of declines in seven weeks, according to the British Bankers' Association. It slid 9 basis points, or 0.09 percentage point, to 4.55 percent.
Interbank lending rates jumped in the past month after Lehman Brothers Holdings Inc. went bankrupt. Libor is still 305 basis points more than the Fed's target rate.
The Korea three-month interbank offered rate advanced 2 basis points yesterday to 6.01 percent, the highest since it was first compiled in August 2004.
Australian Rates
National Australia Bank Ltd., the nation's biggest lender by assets, said funding costs dropped this week following the government's decision to guarantee bank deposits.
Australia's four largest banks cut interest rates for fixed home loans this week after the central bank reduced its benchmark lending rate by the biggest amount since a recession in 1992.
The Bank of Japan and the Reserve Bank of Australia added $7.8 billion to financial systems today after the European Central Bank, Bank of England and Swiss National Bank offered lenders unlimited dollars for the first time yesterday.
The difference between the rate Australian banks charge each other for three-month loans and the overnight indexed swap rate stood at 76.5 basis points, or 0.765 percentage point at 1:15 p.m. in Sydney, heading for the least since Oct. 3, from 95.50 yesterday. The gap has averaged 47 points this year.
Japan's overnight call loan rate traded at 0.51 percent after the operation at 9:20 a.m. in Tokyo, from 0.53 percent before the injection, according to Tokyo Tanshi Co. Japanese overnight commercial paper yields stood at 0.7 percent, down 2.5 basis points to the lowest since Oct. 8, according to brokerage Tokyo Tanshi Co.
The BOJ injections are ``necessary but not sufficient,'' said Guthrie Williamson, portfolio manager in Sydney at Principal Global Investors, which manages $244.9 billion in assets globally. ``It helps to keep the day to day money markets moving, but it doesn't change the fundamentals of slowing economic growth and balance sheet de-leveraging.''
source:bloomberg.com
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